Public Law 87–403

subchapter O of chapter 1 of the Internal Revenue Code of 1954 (relating to gain or loss on disposition of property) is amended by adding at the end thereof the following new part:

“PART IX— DISTRIBUTIONS PURSUANT TO ORDERS ENFORCING THE ANTITRUST LAWS

“SEC. 1111. DISTRIBUTION OF STOCK PURSUANT TO ORDER ENFORCING THE ANTITRUST LAWS.

“(a)“(a)

General Rule.—

Notwithstanding sections 301,312, and 316, a distribution of divested stock (as defined in subsection (e)), to a qualifying shareholder (as defined in subsection (b)), to which section 301 (c)(1) would, but. for this section, apply, shall be a distribution which is not out of the earnings and profits of the distributing corporation for purposes of this subtitle.

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“(b)“(b)

Qualifying Shareholder.—

For purposes of this section, the term ‘qualifying shareholder’ means any shareholder other than a corporation which may be allowed a deduction under section 243, 244,

26 USC 243–245.

or 245 with respect to dividends received.

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“(c)“(c)

Special Rules.—

“(1)“(1)

Distributions to avoid federal income tax.—

Subsection (a) shall not apply to any transaction one of the principal purposes of which is the distribution of the earnings and profits of the distributing corporation or of the corporation whose stock is distributed, or both.

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“(2)“(2)

Stock.—

For purposes of this section, the term ‘stock’ includes rights to fractional shares.

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“(d)“(d)

Definition of Antitrust Order.—

For purposes of this section, the term ‘antitrust order’ means, in the case of any corporation, a final judgment rendered after January 1, 1961, by a court with respect to such corporation in a court proceeding under the Sherman

71 Stat. 163.

73 Stat. 243.

Act (26 Stat. 209; 15 U.S.C. 1–7) or the Clayton Act (38 Stat. 730; 15 U.S.C. 12–27), or both, to which the United States is a party, if such proceeding was commenced on or before January 1, 1959.

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“(e)“(e)

Definition of Divested Stock.—

For purposes of this section, the term ‘divested stock’ means stock meeting the following requirements:

“(1)“(1)

the stock is the subject of an antitrust order entered after January 1, 1961, which—

“(A)“(A)

directs the distributing corporation to divest itself of such stock by distributing it to its shareholders (or requires such distribution as an alternative to other action by any person);

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“(B)“(B)

specifies and itemizes the stock to be divested; and

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“(C)“(C)

fixes the period of time within which the distributing corporation must divest itself of all stock to be disposed of by it by reason of the suit, and such period expires not later than 3 years from the date on which such order becomes final (appeal time having run or appeal having been completed); and

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“(2)“(2)

the court finds—

“(A)“(A)

that the divestiture of such stock, in the manner described in paragraph (1)(A), is necessary or appropriate to effectuate the policies of the Sherman Act, or the Clayton Act, or both;

15 USC 1–7, 12–27.

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“(B)“(B)

that the application of subsection (a) is required to reach an equitable antitrust order in such suit or proceeding; and

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“(C)“(C)

that the period of time for the complete divestiture fixed in the order is the shortest period within which such divestiture can be executed with due regard to the circumstances of the particular case;

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but no stock shall he divested stock if the court finds that its divestiture is required because of an intentional violation of the Sherman Act, or the Clayton Act, or both.”

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The table of parts for subchapter O of chapter 1 of the Internal Revenue Code of 1954 is amended by adding at the end thereof the following:

The amendments made by this section shall apply only with

Effective date.

respect to distributions made after the date of the enactment of this Act.

Section 301 of the Internal Revenue Code of 1954 (relating

26 USC 301.

to distributions of property) is amended by redesignating subsection (f) as subsection (g) and inserting after subsection (e) the following new subsection:

“(f)“(f)

Special Rules for Distributions of Antitrust Stock to corporations.—

“(1)“(1)

Definition of antitrust stock.—

For purposes of this subsection, the term ‘antitrust, stock’ means stock received, by a

“Antitrust stock.”

Ante, p. 4.

corporation which is a party to a suit described in section 1111(d) (relating to definition of antitrust order), in a distribution made after September 6, 1961, either pursuant to the terms of, or in anticipation of, an antitrust order (as defined in subsection (d) of section 1111).

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“(2)“(2)

Amount distributed.—

Notwithstanding subsection (b)(1) (but subject to subsection (b)(2)), for purposes of this section the amount of a distribution of antitrust stock received by a corporation shall be the fair market value of such stock.

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“(3)“(3)

Basis.—

Notwithstanding subsection (d), the basis of antitrust stock received by a corporation in a distribution to which subsection (a) applies shall be the fair market value of such stock decreased by so much of the deduction for dividends received under the provisions of section 243, 244, or 245 as is,

26 USC 243–245.

under regulations prescribed by the Secretary or his delegate, attributable to the excess, if any, of—

“(A)“(A)

the fair market value of the stock, over

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“(B)“(B)

the adjusted basis (in the hands of the distributing corporation immediately before the distribution) of the stock, increased by the amount of gain which is recognized to the distributing corporation by reason of the distribution.”

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The amendments made by this section shall apply only with respect to distributions made after the date of the enactment of this Act.

Section 312 of the Internal Revenue Code of 1954 (relating to the effect on earnings and profits) is amended by adding at the end thereof the following new subsection:

“(k)“(k)

Special Adjustment on Disposition of Antitrust Stock Received as a Dividend.—

If a corporation received antitrust stock (as

Ante. p. 5.

26 USC 301.

defined in section 301(f)) in a distribution to which, section 301 applied, and the amount of the distribution determined under section 301(f)(2) exceeded the basis of the stock determined under section 301(f)(3), then proper adjustment shall be made, under regulations prescribed by the Secretary or his delegate, to the earnings and profits of such corporation at the time such stock (or other property the basis of which is determined by reference to the basis of such stock) is disposed of by such corporation.”

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Subsection (b) of section 535 of the Internal Revenue Code

26 USC 535.

of 1954 (relating to accumulated taxable income) is amended by adding at the end thereof the following new paragraphs:

“(9)“(9)

Distributions of divested stock.—

There shall be allowed as a deduction the amount of any dividend distribution received

Ante, p. 4.

of divested stock (as defined in subsection (e) of section 1111), minus the taxes imposed by this subtitle attributable to such receipt, but only if the stock with respect to which the distribution is made was owned by the distributee on September 6, 1961, or was owned by the distributee for at least 2 years prior to the date on which the antitrust order (as defined in subsection (d) of section 1111) was entered.

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“(10)“(10)

Special adjustment on disposition of antitrust stock received as a dividend.—

If—

“(A)“(A)

a corporation received antitrust stock (as defined in section 301(f)) in a distribution to which section 301 applied,

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“(B)“(B)

the amount of the distribution determined under section 301(f)(2) exceeded the basis of the stock determined under section 301(f)(3), and

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“(C)“(C)

paragraph (9) did not apply in respect of such distribution,

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then proper adjustment shall be made, under regulations prescribed by the Secretary or his delegate, if such stock (or other property the basis of which is determined by reference to the basis of such stock) is sold or exchanged.”

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Section 543 of the Internal Revenue Code of 1954 (relating to personal holding company income) is amended (1) by adding at the end of paragraph (1) of subsection (a) the following new sentence: “This paragraph shall not apply to a dividend distribution of divested stock (as defined in subsection (e) of section 1111) but only if the stock with respect to which the distribution is made was owned by the distributee on September 6, 1961, or was owned by the distributee for at least 2 years prior to the date on which the antitrust order (as defined

Ante, p. 4.

in subsection (d) of section 1111) was entered.”; and (2) by adding at the end thereof the following new subsection:

“(d)“(d)

Special Adjustment on Disposition of Antitrust Stock Received as a Dividend.—

If—

“(1)“(1)

a corporation received antitrust stock (as defined in section 301 (f)) in a distribution to which section 301 applied,

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“(2)“(2)

the amount of the distribution determined under section 301(f)(2) exceeded the basis of the stock determined under section 301(f)(3), and

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“(3)“(3)

such distribution was includible in personal holding company income under subsection (a)(1),

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then proper adjustment shall be made, under regulations prescribed by the Secretary or his delegate, to amounts includible in personal holding company income under subsection (a)(2) with respect to such stock (or other property the basis of which is determined by reference to the basis of such stock).”

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Subsection (b) of section 545 of the Internal Revenue Code of 1954 (relating to undistributed personal holding company income) is

26 USC 545.

amended by adding at the end thereof the following new paragraphs:

“(10)“(10)

Distributions of divested stock.—

There shall be allowed as a deduction the amount of any income attributable to the receipt of a distribution of divested stock (as defined in subsection (e) of section 1111), minus the taxes imposed by this subtitle

Ante, p. 4.

attributable to such receipt, but only if the stock with respect to which the distribution is made was owned by the distributee on September 6, 1961, or was owned by the distributee for at least 2 years prior to the date on which the antitrust order (as defined in subsection (d) of section 1111) was entered.

Ante, p. 4.

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“(11)“(11)

Special adjustment on disposition of antitrust stock received as a dividend.—

If—

“(A)“(A)

a corporation received antitrust stock (as defined in section 301 (f)) in a distribution to which section 301 applied,

Ante, p. 5.

26 USC 30b.

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“(B)“(B)

the amount of the distribution determined under section 301(f)(2) exceeded the basis of the stock determined under section 301(f)(3), and

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“(C)“(C)

Paragraph (10) did not apply in respect of Such distribution,

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then proper adjustment shall be made, under regulations prescribed by the Secretary or his delegate, if such stock (or other property the basis of which is determined by reference to the basis of such stock) is sold or exchanged.”

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Subsection (b) of section 556 of the Internal Revenue Code of 1954 (relating to undistributed foreign personal holding company

26 USC 556.

income) is amended by adding at the end thereof the following new paragraphs:

“(7)“(7)

Distributions of divested stock.—

There shall be allowed as a deduction the amount of any income attributable to the receipt of a distribution of divested stock (as defined in subsection (e) of section 1111), minus the taxes imposed by this subtitle attributable to such receipt, but only if the stock with respect to which the distribution is made was owned by the distributee on September 6, 1961, or was owned by the distributee for at least 2 years prior to the date on which the antitrust order (as defined in subsection (d) of section 1111) was entered.

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“(8)“(8)

Special adjustment on disposition of antitrust stock received as a dividend.—

If—

“(A)“(A)

a corporation received antitrust stock (as defined in section 301(f)) in a distribution to which section 301 applied,

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“(B)“(B)

the amount of the distribution determined under section 301(f)(2) exceeded the basis of the stock determined under section 301(f)(3), and

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“(C)“(C)

paragraph (7) did not apply in respect of such distribution,

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then proper adjustment shall be made, under regulations prescribed by the Secretary or his delegate, if such stock (or other property the basis of which is determined by reference to the basis of such stock) is sold or exchanged.”

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Subsection (b) of section 561 of the Internal Revenue Code of

68A Stat. 198.

26 USC 561.

1954 (relating to deduction for dividends paid) is amended to read as follows:

“(b)“(b)

Special Rules Applicable.—

“(1)“(1)

In determining the deduction for dividends paid, the rules

26 USC 562.

provided in section 562 (relating to rules applicable in determining dividends eligible for dividends paid deduction) and section 563 (relating to dividends paid after the close of the taxable year) shall be applicable.

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“(2)“(2)

Ir a corporation received antitrust stock (as defined in

Ante, p. 5.

26 USC 301.

section 301(f) in a distribution to which section 301 applied and such corporation distributes such stock (or other property the basis of which is determined by reference to the basis of such stock) to its shareholders, proper adjustment shall be made, under regulations prescribed by the Secretary or his delegate, to the amount of the deduction provided for in subsection (a).”

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The amendments made by this section shall apply only with respect to distributions made after the date of the enactment of this Act.